How Brexit could impact economies around the world

How Brexit could impact economies around the world

Prime Minister Theresa May requested a three-month delay to Brexit on Wednesday, March 20, 2019. (AFP)

With a Brexit deadline currently set for March 29, the global economy is becoming anxious about the outcome. The UK might leave the EU next week, or it might be a couple of years down the line. It is also possible that Brexit may not happen at all. Of course, the UK and EU countries care most about the ultimate outcome, but the rest of the world has an interest too.

There are some important reasons why countries and corporations around the globe hope that Brexit never happens. The existing situation in the EU makes trading simpler for international partners. With the EU as it is, countries around the world make one trade agreement to deal with most of Europe, including the UK. Companies doing business in the EU need to know only one set of regulations. The requirements for importing to the UK and to Germany are the same. However, if and when the UK leaves, all of that will be complicated.

Post-Brexit, countries would need trade agreements with the UK, which has the world’s fifth-largest economy. International companies would need to follow the laws, regulations and paperwork for the UK as well as for the EU. If Brexit leads to more European countries reconsidering their association, the legal requirements for international companies operating across Europe could explode.

Other countries, particularly in the Middle East and North Africa, should root against Brexit because it could mean a significant drop in immigration to Europe. In 2015, migration to Europe from that region spiked to over 1 million people, including more than 800,000 to Greece. However, in the first eight months of 2018, just over 76,000 migrants and refugees arrived in the EU, according to the BBC. Most of the immigrants arrive in the Southern European states of Greece, Italy and Spain, which upsets much of the local population. It is widely expected that, if Brexit comes to pass, other European states with gripes against the EU might revolt. If Brexit succeeds, Germany would need to prevent the migration because it could not afford to alienate the Southern European states. This would mean that the floodgates of 2015 would not be reopened, and that open and mass migration would not be accepted again.

On the other hand, some countries and companies would love to see a fractured EU. China has the world’s second-largest economy but, if the EU is considered a single entity, its economy surpasses China’s by $5 trillion. From a perspective of pure competition, China would want to decrease the strength of the EU to show its own prominence. Moreover, Brexit would make China a more attractive manufacturing hub and overall business partner for British firms. Without the EU simplifying contracts with Eastern European firms, for instance, China can provide a more attractive pitch.

If Brexit leads to more European countries reconsidering their association, the legal requirements for international companies operating across Europe could explode

Ellen R. Wald

The same can be said for other East Asian countries with smaller economies. While the UK is part of the EU, European firms offered very attractive contracts for British needs. The EU includes plenty of countries with weaker economies that are home to businesses willing to build software or manufacture goods at reasonable prices. If the UK is no longer a part of the EU, countries like Taiwan, Vietnam and even South Korea and Japan can compete more effectively. With favorable trade agreements with the UK, South Korean and Japanese manufacturers of cars, appliances and electronics have an improved chance of expanding their market share in the UK.

The banking and investments sector is particularly strong in the UK. The end of Brexit could open more opportunities for developing and smaller economies to benefit from British finance. UK banks would likely focus less on European firms and clients, creating more opportunities for other regions, such as the Middle East. British banks can help fund new endeavors, expansions and mergers in the changing Gulf economy. British investors — already often global in their views — could be freed to look more at new regions.

The US seems conflicted about whether it wants Brexit or not. Like so many issues in the US these days, the topic of the economic future of Europe has become tainted with domestic politics. For the most part, conservatives and supporters of President Donald Trump are rooting for Brexit. They see a kinship in the Brexiteers who claim to seek their own sovereignty and promote their own national interests first, and Trump has consulted numerous times with Nigel Farage, who was the leader of the Brexit movement for many years. On the other hand, American progressives oppose Brexit, as they are coming to support a more internationalist policy in which national sovereignty is secondary to cooperation.

Even though American politics seems to care deeply about the outcome of Brexit, it is unclear if the outcome will have any impact on the American economy. Yes, Brexit will mean US businesses need to follow UK-specific regulations, but it would be worth it since the two countries engaged in over $127 billion of trade in 2018, according to the US government. Yes, Brexit may mean opportunities for American businesses in Britain but, outside of a few items like cars and airplanes, the manufacturing sector in the US is not booming. Still, America waits with the rest of the world because major unifications and separations are rare and momentous.

Ellen R. Wald, Ph.D. is a historian and author of “Saudi, Inc.” She is the president of Transversal Consulting and also teaches Middle East history and policy at Jacksonville University. Twitter: @EnergzdEconomy

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view